If U.S. President Joe Biden succeeds in trying to stop gasoline taxes in the U.S., Canada will be the only G7 country not to introduce tax cuts or subsidies to help make against prices at the pump.
Biden on Wednesday called on Congress to suspend federal gasoline and diesel taxes for three months. Meanwhile, the United Kingdom, Italy and Germany (low taxes), France (a consumer discount) and Japan (a wholesale subsidy) have taken similar steps.
As inflation, driven by rising gasoline prices, reaches unprecedented heights since Billie Jean topped the Billboard charts and Return of the Jedi was in theaters, will Canada remain the same? Should I do that?
So far, Ottawa’s answer is no. Natural Resources Minister Jonathan Wilkinson said earlier this week that the federal government has no immediate plans to reduce pump prices with a temporary exemption from the federal gas tax.
Instead, Canada seeks to stabilize world oil prices by increasing supply, which Wilkinson said is beginning to happen. He also said aid for Canadian families, meanwhile, focuses on areas that Finance Minister Chrystia Freeland highlighted in a speech last week: rising federal benefit checks, cost cuts child care and upcoming increases in the safety of old age and Canadian workers. Benefits.
Conservatives have been urging the Liberals for months to cut gasoline taxes, including raising the GST on gasoline, temporarily suspending the carbon price, or raising federal excise taxes by 10 cents a liter.
It is not the solution, experts say
Rory Johnston, founder of the Commodity Context oil market data service, says any kind of tax cut would seem to help the poorest in society, who are most affected by gas prices as a percentage of their income. However, he told CBC News, this approach is the wrong tool for the job in question.
The main reason for high gas prices is an acute shortage of supply, he said; artificially lowering the price on the pump will not help.
High prices on petrol pumps in Yellowknife. Gas prices have brought inflation to levels not seen since the early 1980s. (Jared Monkman / CBC)
“Prices will go up until you kill demand so the market can balance,” he said. “We’re just draining inventories right now, left and right. So by creating a party for gas tax, you’re basically subsidizing consumption at even lower prices.”
Johnston says he’s not sure why the Liberals haven’t moved faster to cut bomb prices, but has speculated that the government is concerned about the narrative about the transition to cleaner energy. “Because I’m generally against the move [toward a tax holiday]I’m not disappointed, “he said.
Professor Kevin Milligan of the Vancouver School of Economics at the University of British Columbia agrees that a tax exemption is not a sound policy, given the extreme oil supply.
Ottawa urged action against rising gas prices
Opposition parties are calling on the federal government to take action against rising gas prices. Conservatives want a reduction in VAT and the NPD is calling for rebates for low-income families.
“When this is the case, the producers of the market have more power,” he said. and this means that a reduction in taxes is more likely to increase producers’ profits than to lower consumer prices.
Out-of-the-box solutions
Johnston says he understands the pressures on governments around the world to do something.
“This is a moment, I think, that calls for the creation of out-of-the-box creative policies, things we haven’t necessarily tried before.”
He offered three ideas:
- Rethinking the gas tax. Create a sliding escalator tax, which goes down when gas prices go up, but goes up when prices go down, eliminating some of the volatility in gas prices.
- Provide direct cash, but only at the lower end of the revenue spectrum. Sending money instead of lowering taxes would make life more affordable without artificially subsidizing the price of a scarce resource, he says. But both Johnston and Milligan warned that simply writing checks to get everyone involved in gas costs runs the risk of worsening inflation.
- Look to restart some facilities, such as the Come by Chance, NL refinery, which closed early in the pandemic and is now being converted into renewable diesel. Recovering oil production “will help reduce this bottleneck of refining and bring the price we are paying at the pump closer to the price of global oil,” he said.
Milligan, meanwhile, says the federal government has a number of areas under its control that it can and should focus on reducing inflation, easing bottlenecks at airports, and improving supply chains. and lowering import tariffs, which would directly reduce import prices. Canadians in stores.
He also stressed the need to allow the Bank of Canada to do its job to reduce inflation.
Milligan said the challenge is that governments generally try to focus on the broad middle class in times of crisis.
“The problem is trying to find something that isn’t inflationary in itself that can help the wider middle class,” he said. “That’s where much of the challenge comes in.”